Earns Verizon
Paul Sakuma  /  AP
Verizon, the nation's largest wireless carrier, said its second-quarter profit fell 7 percent as rising costs outstripped an increase in sales.
updated 7/27/2009 1:44:44 PM ET 2009-07-27T17:44:44

Verizon Communications Inc., the nation's largest wireless carrier, said Monday its second-quarter profit fell 21 percent as cost-cutting in its wireline business failed to keep pace with falling revenues.

The earnings narrowly beat Wall Street expectations, and Verizon said demand for cell phones and its new home TV service were holding up well in the recession.

But the company will be cutting more than 8,000 employee and contractor jobs before the end of the year, speeding up its efforts to keep costs in line, according to chief financial officer John Killian.

The cuts will come on the wireline side, and could be partly offset by hiring on the wireless side, which has been the trend for some years. Verizon ended the quarter with 235,000 employees, up from 229,000 a year ago, despite cutting 8,000 jobs during the year.

Verizon earned $1.48 billion, or 52 cents per share, in the three months ended June 30. That's down from $1.88 billion, or 66 cents per share, a year ago.

Excluding special items, mainly for job cuts, New York-based Verizon says it earned 63 cents per share, beating by a penny the average analyst forecast as polled by Thomson Reuters.

Revenue rose 11 percent to $26.86 billion from $24.1 billion a year ago, matching expectations. The purchase of wireless carrier Alltel Corp. in January was the major reason for the increase — without it, revenue would have risen 1.9 percent.

Verizon shares fell 85 cents, or 2.7 percent, to $30.65 in morning trading.

Verizon Wireless had already revealed how many subscribers it added in the quarter, saying on Friday that net additions were 1.1 million. That was also roughly in line with analyst expectations. It ended the quarter with 87.7 million customers, ahead of AT&T's 79.6 million.

AT&T added more subscribers in the quarter: a net of 1.37 million. The iPhone continued to make AT&T a first choice for those willing to spend a premium on wireless service, particularly as the carrier and partner Apple Inc. launched a new model in June.

Chief Operating Officer Denny Strigl said the company had noticed a definite effect of the iPhone 3GS launch in the number of customers moving to AT&T.

On a conference call, Strigl told investors and analysts that he expects Verizon Wireless to stay competitive by introducing new phones, including a second version of the BlackBerry Storm and devices from Motorola Inc. running Google Inc.'s Android software. He also said Verizon Wireless will have Palm Inc.'s Pre phone early next year. The phone is currently exclusive to Sprint Nextel Corp., and it had been unclear when it would be in Verizon stores.

Wireless is the main growth driver at Verizon Communications, but its results are hamstrung by the fact that it doesn't fully own the wireless unit. Vodafone Group PLC of Britain owns 45 percent of it, and gets a corresponding share of its profits, though all of Verizon Wireless' revenue is counted in Verizon Communications' results.

On the wireline side, which includes Verizon's local-phone operations, services for businesses and governments, and long-haul wholesale traffic, the operating margin decline to 4.8 percent from 8.8 percent. Verizon's costs were nearly the same as a year ago, while revenue fell 5.2 percent.

Most of that drop came from the enterprise and wholesale units, as businesses continued to pull back in the face of the recession.

Perhaps uniquely for a U.S. phone company, local consumer services are actually rising at Verizon despite massive losses of landlines as households opt for cable phone service or going wireless-only.

The increase is minor — 0.2 percent in the latest quarter — but it's a testament to Verizon's heavy investment in replacing its copper network with optical fiber, enabling it to offer cable-like TV service and ultrafast broadband.

Verizon is set to shrink before the end of the year. It is selling some of its own and Alltel's operations in 79 mainly rural areas to AT&T for $2.35 billion to satisfy regulatory requirements, and all local-phone operations in 13 states to Frontier Communications Corp.

The Frontier deal will trim Verizon's local foot print to concentrate it on more densely populated areas, where it makes business sense to upgrade to optical fiber.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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